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RFID market trips on classic 'vicious circle'

Posted: 15 Dec 2006     Print Version  Bookmark and Share

Keywords:ABI Research  passive RFID  RFID  passive radio frequency identification  UHF 

The market for passive RFID labels—particularly UHF labels—has not yet posted growth as industry stakeholders had hoped. The reason behind this, explains ABI Research, is the classic 'vicious circle' that the market is experiencing right now, where dynamic, production costs for UHF labels or Gen 2 passive labels, are still at levels tending to inhibit the high-volume deployments that can provide economies of scale.

"At current prices, many end-user companies in the retail/CPG supply chain struggle to determine a compelling business case for RFID," said research analyst Robert Foppiani. "Those companies that have high value, high-risk goods often find a business case to justify the investment in RFID passive labels at current prices. But many members of the value chain are operating on thin margins, and most are unwilling to drop prices any further until there is much greater volume."

At present, label vendors are employing different tactics to profit from their products. Alien, Avery Dennison, Texas Instruments and NXP hope that their strap technologies will do the trick. Meanwhile, multiple vendors are hoping to shrink the size of an IC to obtain more units from a wafer.

ABI Research reported that some EPC Gen 2 RFID vendors are engaged in 'loss-leader' activities, offering labels at unsustainable prices just to gain market share. Eventually, some will drop out of the running, or will find niche markets for their products. However, the research firm noted that cost reduction tactics will not have short-term effects on market volumes. Price cuts made last year were crucial to attract end-users complying with mandates. The research firm forecasted that future vendor attempts to lower production costs will be more sensible as higher volumes are reached. Users will proceed cautiously case-by-case and volumes will rise slowly and steadily rather than dramatically, reported ABIResearch.

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